Missing Bull Markets

PARIS – As New York Mayor Ed Koch used to say: “How we doin’?”

A reader’s question suggests we’re not doing very well:

 

“How can we take your recommendations seriously when you missed the biggest bull market of our lifetimes?”

 

wall-street-bull-black-and-white-d0004-wes-and-dotty-weberMiss this? How could you!

Image  credit: Wes & Dotty Weber

 

He was referring to the big run-up in stock prices since 2009. We strongly object. That is a gross misrepresentation of our record! First, we don’t give recommendations; we just tell you what we’re thinking and doing. Giving advice requires far more confidence in our own opinions than we have.

Second, we didn’t miss one of the biggest bull markets of our lifetimes; we missed two of them! But wait. There’s more to the story. And (we can hardly believe it ourselves) it explains how we beat practically every investor in America…

 

The Time to Buy…

On Monday, the Dow fell 275 points – or 1.6%. This followed news that a key measure of the health of the U.S. manufacturing sector, the ISM Manufacturing Index, revealed a second month of contraction in December.

 

1-DJIA dailyThe DJIA has a less than stellar start to the year… – click to enlarge.

 

“The Fed should not be raising rates,” said some Wall Street analysts.

“Don’t worry about it. As long as services are still expanding, we’re all right,” said others.

Most likely, they will both be proven correct: We’re all right… until we’re not. And when it becomes obvious that we’re not, the Fed will put an end to its rate hikes. Which takes us back to… us.

We began writing a daily e-letter in 1998. Back then, it looked to us as though investors had gone a little loopy in the dot-com craze. And after 16 years of falling inflation and rising stocks, it looked to us as though that long cycle was coming to an end.

The late Richard Russell had taught us that markets move in large swings – from cheap to expensive and back again. You can never know when prices are going up or down. But the time to buy is when they are at historic lows. The time to sell is when they are at historic highs. Everything else is noise and muddled guessing.

 

Our First “Trade of the Decade”

So, in January 2000, we described a “Trade of the Decade”: Buy gold. Sell U.S. stocks. Few people today believe gold is a good investment. Even fewer were bullish on gold at the start of the new millennium.

We can’t remember the last time we read a positive comment on gold in the mainstream press.´Gold has been in a bear market for the last four and a half years. In U.S. dollar terms, it’s lost 44% of its value since hitting an all-time high of $1,921 on September 6, 2011.

 

2-Gold-Dow ratioGold relative to the Dow Industrials from early 2000 to early 2010 – click to enlarge.

 

Meanwhile, at the dawn of the new millennium, U.S. stocks were the place to be. They had been going up in a more or less permanent bull market that began in 1982 with the Dow under 1,000. By January 2000, the Dow had risen to 11,723.

“The top is in,” we wrote. Actually, we don’t know what we wrote. But we must have thought the top was in because we were proposing to get out of U.S. stocks… and to stay out for at least the next 10 years.

January 1 was a holiday in 2000, as it was in 2016. It was a Saturday to boot. But when markets opened on Monday, you could buy an ounce of gold for $288. If you had done the simplest thing – sell your U.S. stocks and put the money into gold – as of yesterday, you would have watched a $10,000 investment turn into roughly $37,000.

If you had stuck with stocks, on the other hand, and NOT missed the two great bull markets – of 2001 to 2007 and 2009 to 2015 – you would have watched your $10,000 become almost $19,000 (including dividends).

This is still much better than what most investors earned. Most traded in and out of stocks over the last 15 years – most often buying and selling the worst stocks at the worst times. This would have gotten you only a fraction of the buy-and-hold return… and most likely a negative result.

 

A New Trade…

So, guess what – missing bull markets in stocks is no sin. Catching them is no virtue. And even after losing more than one-third of its value, gold is still not such a bad place for your money! But what if you’d followed the rest of our formula?

In 2010, we described a “New Trade of the Decade.” This time: Buy Japanese stocks. Sell Japanese government bonds (JGBs). This left us with a couple of questions.

 

  1. What if you had been more aggressive in our first Trade of the Decade and, between 2000 and 2010, you’d shorted (i.e., bet against) the S&P 500 as well as bought gold?
  2. What if you had bailed out of gold on January 1, 2010… bought Japanese stocks… and switched from shorting the S&P 500 to shorting JGBs?

 

3-Nikkei, LTNikkei Index, monthly since 1987 – click to enlarge.

 

4-JGB, LTJGB monthly since 1980 – click to enlarge.

 

These calculations take more space than the back of our envelope provides, so we turned to Bonner & Partners researcher Nick Rokke. Adjusting for fluctuations in the yen against the dollar… adding in dividends… and accounting for the short positions against U.S. stocks and JGBs, Nick crunched the numbers.

And he came up with the returns you would have made on our combined Trades of the Decade between 2000 and today. And as you can see, this simple strategy beat all major asset classes.

 

5-Trades-of-the-DecadeCombined “trades of the decade” strategy between 2000 and today – it’s actually clobbering most “benchmarks” relevant to professional money managers by a sizable margin.

 

Spectacular? No. But it’s all right with us.

 

Charts by stockcharts, bigcharts, barchart, Bonner & Partners

 

Image captions by PT

 

The above article originally appeared at the Diary of a Rogue Economist, written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.

 

 

 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • America Goes Full Imbecile
      Credit has a wicked way of magnifying a person’s defects.  Even the most cautious man, with unlimited credit, can make mistakes that in retrospect seem absurd.  But an average man, with unlimited credit, is preeminently disposed to going full imbecile.   Let us not forget about this important skill...  [PT]   Several weeks ago we came across a woeful tale of Mike Meru.  Somehow, this special fellow, while of apparent sound mine and worthy intent, racked up...
  • Retail Capitulation – Precious Metals Supply and Demand
      Small Crowds, Shrinking Premiums The prices of gold and silver rose five bucks and 37 cents respectively last week. Is this the blast off to da moon for the silver rocket of halcyon days, in other words 2010-2011?   Various gold bars. Coin and bar premiums have been shrinking steadily (as have coin sales of the US Mint by the way), a sign that retail investors have lost interest in gold. There are even more signs of this actually, and this loss of interest stands in stark...
  • Credit Spreads: Polly is Twitching Again - in Europe
      Junk Bond Spread Breakout The famous dead parrot is coming back to life... in an unexpected place. With its QE operations, which included inter alia corporate bonds, the ECB has managed to suppress credit spreads in Europe to truly ludicrous levels. From there, the effect propagated through arbitrage to other developed markets. And yes, this does “support the economy” - mainly by triggering an avalanche of capital malinvestment and creating the associated boom conditions, while...
  • Gold Divergences Emerge
      Bad Hair Day Produces Positive Divergences On Friday the ongoing trade dispute between the US and China was apparently escalated by a notch to the next level, at least verbally. The Trump administration announced a list of tariffs that are supposed to come into force in three week's time and China clicked back by announcing retaliatory action. In effect, the US government said: take that China, we will now really hurt our own consumers!  - and China's mandarins replied: just you wait, we...
  • Industrial Commodities vs. Gold - Precious Metals Supply and Demand
      Oil is Different Last week, we showed a graph of rising open interest in crude oil futures. From this, we inferred — incorrectly as it turns out — that the basis must be rising. Why else, we asked, would market makers carry more and more oil?   Crude oil acts differently from gold – and so do all other industrial commodities. What makes them different is that the supply of industrial commodities held in storage as a rule suffices to satisfy industrial demand only for a...
  • Chasing the Wind
      Futility with Purpose Plebeians generally ignore the tact of their economic central planners.  They care more that their meatloaf is hot and their suds are cold, than about any plans being hatched in the capital city.  Nonetheless, the central planners know an angry mob, with torches and pitchforks, are only a few empty bellies away.  Hence, they must always stay on point.   Watch for those pitchfork bearers – they can get real nasty and then heads often roll quite literally....
  • Lift-Off Not (Yet) - Precious Metals Supply and Demand
      Wrong-Way Event Last week we said something that turned out to be prescient:   This is not an environment for a Lift Off Event.   An unfortunate technical mishap interrupted the latest moon-flight of the gold rocket. Fear not true believers, a few positive tracks were left behind. [PT]   The price of gold didn’t move much Mon-Thu last week, though the price of silver did seem to be blasting off. Then on Friday, it reversed hard. We will provide a forensic...
  • Merger Mania and the Kings of Debt
      Another Early Warning Siren Goes Off Our friend Jonathan Tepper of research house Variant Perception (check out their blog to see some of their excellent work) recently pointed out to us that the volume of mergers and acquisitions has increased rather noticeably lately. Some color on this was provided in an article published by Reuters in late May, “Global M&A hits record $2 trillion in the year to date”, which inter alia contained the following chart illustrating the...
  • Cryptocurrency Technicals – Navigating the Bear Market
      A Purely Technical Market Long time readers may recall that we regard Bitcoin and other liquid big cap cryptocurrencies as secondary media of exchange from a monetary theory perspective for the time being. The wave of speculative demand that has propelled them to astonishing heights was triggered by market participants realizing that they have the potential to become money. The process of achieving more widespread adoption of these currencies as a means of payment and establishing...
  • The Fed's “Inflation Target” is Impoverishing American Workers
      Redefined Terms and Absurd Targets At one time, the Federal Reserve's sole mandate was to maintain stable prices and to “fight inflation.”  To the Fed, the financial press, and most everyone else “inflation” means rising prices instead of its original and true definition as an increase in the money supply.  Rising prices are a consequence – a very painful consequence – of money printing.   Fed Chair Jerome Powell apparently does not see the pernicious effects...
  • A Walk on the Wild Side
      A Walk on the Wild Side   “Never play cards with a man called Doc.  Never eat at a place called Mom’s.  Never sleep with a woman whose troubles are worse than your own.” – Nelson Algren, A Walk on the Wild Side   Fresh Fruit or Rotting Vegetables? A subtle gas seems to always be vented into the atmosphere at the sunset of an extended bull market.  As the light fades, an odor that’s indiscernible from that of fresh fruit or rotting vegetables wafts down...

Support Acting Man

Item Guides

j9TJzzN

The Review Insider

Dog Blow

Austrian Theory and Investment

Archive

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

Mish Talk

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com